Euro zone growth slowed sharply in the third quarter as new emissions tests hit German car production and the Italian economy stagnated amid a standoff with Brussels over its national budget.
Gross domestic product for the bloc increased by 0.2 per cent from the end of June, confounding expectations of economists polled by Reuters that the single currency area would maintain the 0.4 per cent pace of economic growth experienced during the second quarter of the year.
The annual pace of GDP growth was also slower than anticipated, at 1.7 per cent during the three months to September against expectations for a 1.8 per cent rise. It was 2.2 per cent in the second quarter, revised up from the 2.1 per cent initial reading for that period.
The flash data published on Tuesday follow sluggish growth figures from the euro zone's third-largest economy, Italy, which recorded no quarterly GDP growth in the third quarter.
In France, however, the pace of growth accelerated, to 0.4 per cent from 0.2 per cent in each of the two previous quarters.
"As we believe that part of the slowdown is being caused by transitory factors, particularly in Germany, we still expect a modest bounce back in Q4 activity," said Nicola Nobile, lead euro zone economist at Oxford Economics. "But we are conscious that 'temporary factors' have been overplayed to justify the slowdown in the euro zone economy at the start of the year, and that risks are clearly skewed to the downside."
Inflation
Separately, German inflation accelerated to the fastest pace since February 2012. Consumer prices rose an annual 2.4 per cent in October, compared with 2.2 per cent in September.
The build-up of price pressures in Europe’s largest economy helps justify the ECB’s plan to cap its bond-buying programme in December, but it comes against the backdrop of slowing economic momentum in the country and across the region.
So far central-bank officials have remained sanguine. The Bundesbank says it expects zero German growth for the third quarter, but only because of temporary factors.
ECB president Mario Draghi said last week that while the euro area has lost momentum, there’s no downturn and domestic demand remains solid.
Euro-area inflation data will be published on Wednesday, with economists expecting a pick-up to 2.2 per cent from 2.1 per cent.
The ECB’s governing council is due to hold a policy meeting on December 13th to review its decision to stop asset purchases at the end of the year. It has always said that decision is dependent on incoming data.
Under a national measure, inflation in Germany stood at 2.5 per cent in October, the highest level since 2008.
– The Financial Times Limited and Bloomberg
